DEVELOPMENT AND LICENSE AGREEMENT

Exhibit 10.34

 

Confidential treatment has been granted for portions of this exhibit. The copy filed herewith omits the information subject to the confidential treatment request. Omissions are designated as * * *. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

 

DEVELOPMENT AND LICENSE AGREEMENT

 

This DEVELOPMENT AND LICENSE AGREEMENT (the “Agreement”) is entered into as of December 19, 2002 (the “Effective Date”) by and among DURECT Corporation, a corporation organized and existing under the laws of Delaware and having its principal office at 10240 Bubb Road, Cupertino, California 95014, and Southern BioSystems, Inc., (“SBS”) a corporation organized and existing under the laws of Alabama and having its principal office at 756 Tom Martin Drive, Birmingham, Alabama 35211, a wholly-owned subsidiary of DURECT Corporation (DURECT Corporation and SBS together, “DURECT”), and Pain Therapeutics, Inc., a corporation organized and existing under the laws of Delaware and having its principal office at 416 Browning Way, South San Francisco, CA 94080, (“PTI”) (DURECT and PTI hereinafter to be collectively referred to as the “Parties” and singularly as a “Party”).

 

RECITALS

 

WHEREAS, DURECT is engaged in the research, development and manufacture of controlled-release drug delivery products;

 

WHEREAS, PTI is engaged in the research, development and commercialization of opioid pharmaceutical products;

 

WHEREAS, DURECT possesses the right to license proprietary rights to a controlled-release technology that uses a high-viscosity base component to provide controlled release of active ingredients known as the SABER™ Delivery System (as defined herein below);

 

WHEREAS, the Parties to this Agreement desire to collaborate in the development of specified oral controlled-release opioid products based on the SABER™ Delivery System; and

 

WHEREAS DURECT wishes to license certain of such proprietary rights to the SABER™ Delivery System to PTI so that PTI may develop and commercialize such products.

 

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants set forth herein and other valuable consideration, it is agreed by and between the Parties as follows:

 

ARTICLE I

 

DEFINITIONS

 

For the purposes of this Agreement, the following words and phrases, whether used in the singular or plural, shall have the following meanings:

1.1 “Accounting Period” means a calendar quarter commencing on the first day of an Accounting Period, respectively January 1, April 1, July 1 and October 1, each being the first day, and finishing on the last day of an Accounting Period, respectively March 31, June 30, September 30 and December 31, each being the last day.

 

1.2 “Act” means the Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§ 301 et seq., as such may be amended from time to time.

 

1.3 “Acquiror” has the meaning set forth in Section 17.1.

 

1.4 “Active Ingredient” means any pharmaceutically or pharmacologically active agent or compound alone or in combination with other components, other than a Controlled Release Carrier.

 

1.5 “Affiliate” means any corporation or other business entity, which controls, is controlled by or is under common control with a Party. For purposes of this definition, “control” means, as of or subsequent to the Effective Date, direct or indirect ownership of more than fifty percent (50%) of the voting interest or income interest in a corporation or business entity.

 

1.6 “Antagonist” means one or more (either alone or together) of any opioid receptor antagonist, including [* * *].

 

1.7 “Bulk Dosage Form” has the meaning set forth in Section 5.1(a).

 

1.8 “Business Day” means a day on which banks are open for business in San Francisco, California.

 

1.9 “Change of Control” has the meaning set forth in Section 4.3.

 

1.10 “Clinical Program” has the meaning set forth in Section 3.1

 

1.11 “Clinical Program Milestone” means an event relating to the clinical development of the Licensed Product as defined in Section 3.2.

 

1.12 “Commercialize” or “Commercialization” means all ongoing processes and activities generally engaged in by a company marketing pharmaceutical products to establish and maintain a presence and sales for an ethical pharmaceutical product in a particular market, including, but not limited to offering for sale, selling, marketing, promoting, distributing and importing such product.

 

1.13 “Competing Product” has the meaning set forth in Section 8.4(c).

 

1.14 “Confidential Information” has the meaning set forth in Section 13.1.

 

1.15 “Controlled Release Carrier” means one or more molecules, particles, and/or other formulants that are physically and/or chemically associated with the Active Ingredient(s) and that are capable of achieving the controlled release of the Active Ingredient(s) to which they are physically and/or chemically associated (i.e., such Active Ingredient(s) is released and pharmacologically available in the system of a recipient), in each case, as a result of the physical and/or chemical

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-2-

disassociation, release, degradation, decomposition or disintegration of such molecules, particles and/or other formulants from such Active Ingredient(s). [* * *]

 

1.16 “Controlled Release System” means a delivery system for an Active Ingredient(s) that requires and includes a Controlled Release Carrier, including the SABER™ Delivery System. [* * *]

 

1.17 “Current Good Manufacturing Practices” or “cGMP’s” means the requirements of the FDA with regard to the manufacture of Opioid Drugs and finished pharmaceuticals as set forth in 21 CFR 210 and 211, as amended from time to time or any equivalent law in the Territory.

 

1.18 “DURECT Inventions” has the meaning set forth in Section 12.5(a).

 

1.19 “DURECT Patent Rights” means: (i) all Patents in the Territory related to the SABER™ Delivery System, including its manufacture, sale, importation or use, including those Patents listed in Exhibit 1.19, which are owned or controlled by or licensed to DURECT or its Affiliates as of the Effective Date or during the Term and (ii) all Patents covering DURECT Inventions, all to the extent DURECT or its Affiliates have the right to grant licenses or sublicenses hereunder.

 

1.20 “DURECT Research Expenses” means [* * *]

 

1.21 “DURECT Technology” means: (i) any and all Technical Information related to the SABER™ Delivery System, including its manufacture, sale, importation or use, which is owned or controlled by or licensed to DURECT or its Affiliates as of the Effective Date or during the Term and (ii) all DURECT Inventions, all to the extent DURECT or its Affiliates have the right to grant licenses or sublicenses hereunder.

 

1.22 “Effective Date” has the meaning set forth in the preamble.

 

1.23 “FDA” means the United States Food and Drug Administration.

 

1.24 “Field” means any and all prophylactic and therapeutic applications for humans.

 

1.25 “First Commercial Sale” means, with respect to a Licensed Product in any country in the Territory, the first arms’-length sale of the Licensed Product to a Third Party purchaser in such country of commercial quantities of the Licensed Product by PTI or any of its Sublicensees or Affiliates (i) which is after the Product Registration and commercial launch of the Licensed Product in such country and (ii) which transfers title to the Licensed Product to such Third Party purchaser; provided, however, that the First Commercial Sale shall not be deemed to have occurred if the sale is made to a Sublicensee or Affiliate (unless such Sublicensee or Affiliate is purchasing the Licensed Product as an end user).

 

1.26 “Formulation Development” has the meaning set forth in Section 2.4.

 

1.27 “GAAP” means the then-current applicable United States Generally Accepted Accounting Principles consistently applied as recognized or accepted by the United States Securities

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-3-

and Exchange Commission and the Financial Accounting Standards Board. As used herein, “GAAP” shall also include cost accounting principles and procedures that are generally accepted in the United States consistently applied.

 

1.28 “IND” means any Investigational New Drug Application (as described in 21 C.F.R. § 312) filed with the FDA to initiate the conduct of human clinical trials with a drug pursuant to the Act and the regulations promulgated thereunder, including any amendments or supplements thereto.

 

1.29 “Indemnified Party” has the meaning set forth in Section 11.3.

 

1.30 “Indemnifying Party” has the meaning set forth in Section 11.3.

 

1.31 “Initial Licensed Product” has the meaning set forth in Section 2.1.

 

1.32 “Invention” means any and all Technical Information conceived or reduced to practice by a Party or jointly by the Parties in the course of performing the activities under this Agreement.

 

1.33 “Joint Development Team” or “JDT” has the meaning set forth in Section 7.1.

 

1.34 “Licensed Product” means any human pharmaceutical product intended for the oral route comprising a Controlled Release Carrier of the SABER™ Delivery System and Opioid Drug, and optionally an Antagonist, which is selected for development under Section 2.1, including any and all pharmaceutical dosage formulations, forms and dosage strengths thereof.

 

1.35 “Losses” has the meaning set forth in Section 11.1.

 

1.36 “Major Market Country” means one of the [* * *]; and “Major Market Countries” shall mean collectively all of the foregoing countries.

 

1.37 “Manufacturing Cost” has the meaning set forth in Exhibit 1.37.

 

1.38 “NDA” means a New Drug Application (as described in 21 C.F.R. § 314.50 et. seq.) filed with the FDA for marketing approval for a drug pursuant to the Act and the regulations promulgated thereunder, including any amendments or supplements thereto.

 

1.39 “Net Sales” means the gross amount invoiced for all arms’ length sales of the Licensed Product by PTI and its Sublicensees and Affiliates to Third Parties in the Territory, other than transfers among PTI and its Sublicensees or Affiliates (unless such Sublicensee or Affiliate is purchasing the Licensed Product as an end user), less deductions in their normal and customary accounts as determined in accordance with GAAP for (a) actual trade, quantity and cash discounts, rebates and administrative fees (including, without limitation, U.S. Medicaid and Medicare programs and other private or governmental sponsored rebates and administrative fees paid to purchasing groups), credits, allowances, refunds and retroactive price reductions, including chargebacks; (b) any tax or government charge (other than income tax) levied on the sale, transportation or delivery of the Licensed Product and borne by the seller thereof; (c) any charges for freight, postage, shipping, security or special handling, import or export taxes which are borne by the seller, or insurance or

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-4-

charges for returnable containers which are borne by the seller; and (d) reasonable provisions for allowance for uncollectible amounts determined in accordance with GAAP, consistently applied. For clarity, Net Sales shall not include amounts invoiced for Licensed Products transferred in a country as part of clinical trials prior to receipt of Product Registration of the Licensed Product in such country.

 

1.40 “Opioid Drug” means one or more Active Ingredients (either alone or together) from the group consisting of [* * *] (as such foregoing list may be modified from time to time in accordance with the terms of this Agreement) together with any and all pharmaceutically acceptable salt, free base, prodrug or conjugated form of the Active Ingredient.

 

1.41 “Patents” means any and all patent and patent applications (and equivalents thereof including certificates of invention) throughout the Territory, including any and all divisions, continuations, provisional applications, continuations-in-part, continued prosecution applications, requests for continued examination, additions, renewals, extension, re-examinations, reissues, supplementary protection certificates and all U.S. and foreign counterparts of the foregoing.

 

1.42 “Party” or “Parties” has the meaning set forth in the Preamble above.

 

1.43 “Phase I Clinical Trial” means the initial introduction of a Licensed Product as an investigational new drug into humans as required in 21 C.F.R. § 312, designed to determine the metabolism and pharmacologic actions of the Licensed Product in humans, the side effects associated with increasing doses and, if possible, to gain early evidence on effectiveness, and also includes studies of drug metabolism, structure-activity relationships and mechanism of action in humans.

 

1.44 “Phase II Clinical Trial” means a controlled or uncontrolled clinical study as required in 21 C.F.R. § 312 conducted to evaluate the effectiveness of a Licensed Product for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated with the Licensed Product.

 

1.45 “Phase III Clinical Trial” means an expanded controlled or uncontrolled clinical trial as required in 21 C.F.R. § 312 performed after preliminary evidence suggesting effectiveness of a Licensed Product has been obtained, the primary purpose of which is to establish effectiveness and safety of the Licensed Product in patients with the particular indication or indications being studied and to provide an adequate basis for physician labeling.

 

1.46 “PTI Inventions” has the meaning set forth in Section 12.5(b).

 

1.47 “PTI Patent Rights” means: (i) all Patents, if any, in the Territory relating to an Opioid Drug, [* * *], including its manufacture, sale, importation or use, which are owned or controlled by or licensed to PTI or its Affiliates as of the Effective Date or during the Term and (ii) all Patents covering PTI Inventions, all to the extent that PTI or its Affiliates have the rights necessary to take the required actions hereunder.

 

1.48 “PTI Technology” means: (i) any and all Technical Information relating to an Opioid Drug, [* * *], including its manufacture, sale, importation or use which is owned, possessed,

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-5-

developed or acquired by or licensed to PTI or its Affiliates as of the Effective Date or during the Term and (ii) all PTI Inventions, all to the extent that PTI or its Affiliates have the rights necessary to take the required actions hereunder.

 

1.49 “Pre-Clinical Plan” has the meaning set forth in Section 2.1.

 

1.50 “Pre-Clinical Program” has the meaning set forth in Section 2.1.

 

1.51 “Pre-Clinical Program Information” means any Technical Information developed or obtained by either Party or their Affiliates, in the course of performing the Pre-Clinical Program.

 

1.52 “Product Registration” means, with respect to a Licensed Product, a NDA approved by the FDA in the United States or any other government approval required by a government or Regulatory Authority of a country in the Territory necessary to permit the marketing, import, use and sale of a Licensed Product in such country. Product Registration shall include governmental approval of pricing and/or reimbursement in jurisdictions where such approval is required (either legally or commercially) for commercial sale of a Licensed Product.

 

1.53 “Regulatory Authority” means the FDA in the United States and any government or regulatory authorities in any country in the Territory that is a counterpart to the FDA and holds responsibility for granting Product Registrations and other marketing approvals for the Licensed Product in such country.

 

1.54 “SABER™ Delivery System” means a Controlled Release System comprising a Controlled Release Carrier that is a high viscosity liquid carrier material (HVLCM) including sucrose acetate isobutyrate (SAIB), as such Controlled Release System is claimed in the Patents listed on Exhibit 1.19 as updated from time to time.

 

1.55 “SABER™ Ingredients” has the meaning set forth in Section 5.1(a).

 

1.56 “Sublicensee” means any Third Party to whom PTI has granted (i) the right to make and sell a Licensed Product in the Territory, with respect to Licensed Products made and sold by such Third Party or (ii) the right to distribute a Licensed Product made by or for PTI in the Territory, provided that such Third Party is responsible for the marketing and promotion of such Licensed Product in the applicable territory and has the right to record sales of such Licensed Product for its account.

 

1.57 “Technical Information” means any and all technical information and other technical subject matter (including medical, toxicological, pharmacological and clinical), trade secrets, know-how, ideas, concepts, discoveries, disclosure claims, formulas, formulations, processes, methods, procedures, designs, compositions of matter, specifications, drawings, techniques, results, technologies, compounds, research, data, inventions, discoveries, whether or not patentable.

 

1.58 “Term” means the term of the Agreement as set forth in Section 15.1.

 

1.59 “Terminated Country” has the meaning set forth in Section 8.5.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-6-

1.60 “Territory” means, with respect to each Licensed Product, all countries of the world and their respective territories and possessions, excluding any country with respect to which the license granted to PTI under Article VIII with respect to such Licensed Product has been terminated in accordance with the terms and conditions of this Agreement.

 

1.61 “Testing Laboratory” has the meaning set forth in Section 5.3(g).

 

1.62 “Transfer Price” has the meaning set forth on Exhibit 5.1.

 

1.63 “Third Party” means any person or entity other than DURECT, PTI, or any of their Affiliates.

 

1.64 “United States” or “U.S.” means the United States of America and its territories and possessions.

 

Unless specified to the contrary, references to Articles, Sections and/or Exhibits mean the particular Articles, Sections and/or Exhibits to this Agreement. Whenever used in this Agreement:

 

(i) the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation”;

 

(ii) the word “day” means a calendar day unless otherwise specified;

 

(iii) the word “law” (or “laws”) means any applicable, legally binding statute, ordinance, resolution, regulation, code, guideline, rule, order, decree, judgment, injunction, mandate or other legally binding requirement of a government entity;

 

(iv) the word “notice” shall mean notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement; and

 

(v) the words “commercially reasonable efforts” shall mean the standard that a reasonable business person would use for similar products of similar potential at a similar stage of development in the Territory.

 

ARTICLE II

 

DEVELOPMENT OF LICENSED PRODUCTS

 

2.1 Initiation of Development of Licensed Products.

 

(a) Subject to the terms and conditions herein including Article IV, PTI shall diligently develop Licensed Products under this Agreement, including making available such of its personnel, and taking such steps as are reasonably necessary, in order to carry out its obligations hereunder. In the event PTI desires to initiate development work on a Licensed Product under this Agreement, it shall send to DURECT a written notice setting forth a description [* * *] of the proposed new Licensed Product. Upon DURECT’s receipt of such notice, the JDT shall develop a

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-7-

work plan (“Pre-Clinical Plan”) which outlines the pre-clinical program required to establish the feasibility of such Licensed Product for use in humans in the Field, including: [* * *] (“Pre-Clinical Program”). The Pre-Clinical Plan for each Licensed Product shall further include an estimated development timeline, allocation of responsibility for performing the tasks between DURECT and PTI and budget for DURECT’s performance of its activities under the Pre-Clinical Program (the “Pre-Clinical Budget”). Subject to Article VII, the Pre-Clinical Plan shall be agreed upon by the JDT within thirty (30) days after DURECT’s receipt of PTI’s written notice referenced above, and upon such agreement of the Pre-Clinical Plan, such Licensed Product shall be included for development under this Agreement. All amendments to the Pre-Clinical Plan of any Licensed Product, including increases or decreases to the Pre-Clinical Budget, shall be agreed to by the JDT in writing.

 

The Parties anticipate that the first Licensed Product that will be developed under this Agreement (the “Initial Licensed Product”) shall incorporate [* * *] as the Opioid Drug. In addition to the Pre-Clinical Plan for the Initial Licensed Product, the JDT shall diligently cooperate to develop a written plan within thirty (30) days of the Effective Date for [* * *].

 

2.2 Pre-Clinical Program.

 

(a) DURECT and PTI shall be responsible for performance of all activities allocated to it under each Pre-Clinical Plan and shall use diligent and commercially reasonable efforts to perform such activities within the applicable timelines and Pre-Clinical Budgets therefor. In the event that either Party first becomes aware that it is unlikely to perform an activity assigned to such Party under the Pre-Clinical Plan within the applicable timeline or the applicable Pre-Clinical Budget therefor, such Party shall promptly notify the other Party’s lead member of the JDT and the JDT shall meet to discuss how to redress such situation. Each Party shall conduct all such activities in accordance with the terms and conditions of this Agreement and all applicable law in the Territory.

 

(b) Subject to Section 2.3, DURECT agrees to procure or furnish suitable laboratory facilities and equipment for those activities it is assigned to perform in connection with each Pre-Clinical Plan.

 

(c) At each [* * *] meeting of the JDT, each Party shall provide the JDT with a progress report summarizing the progress of its activities relating to each Pre-Clinical Program during the past calendar [* * *]. Furthermore, each Party shall promptly communicate to the JDT any Pre-Clinical Program Information as follows: DURECT shall communicate and disclose in writing all previously undisclosed Pre-Clinical Program Information developed, conceived of or acquired by DURECT, and PTI shall communicate and disclose in writing all previously undisclosed Pre-Clinical Program Information developed, conceived of or acquired by PTI.

 

(d) Within thirty (30) days after completion of a Pre-Clinical Program as shall be determined by the JDT, each Party shall provide to the JDT a completed pharmaceutical development report and a technical documentation package of the work it has performed under such Pre-Clinical Program of sufficient detail and completeness to fully document all activities performed by such Party under the Pre-Clinical Program with respect to such Licensed Product.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-8-

2.3 Pre-Clinical Program Expenses.

 

(a) In consideration for DURECT performing each Pre-Clinical Program, PTI shall reimburse to DURECT all DURECT Research Expenses incurred by DURECT in connection with each Pre-Clinical Program; provided that with respect to the Pre-Clinical Program, PTI shall not be obligated to pay for any portion of the DURECT Research Expenses that exceeds the then-current Pre-Clinical Budget, and DURECT shall not be obligated to perform activities which would result in DURECT Research Expenses in excess of the then-current Pre-Clinical Budget therefor without the prior written agreement of the Parties to amend the budget.

 

(b) DURECT shall invoice PTI for DURECT Research Expenses under each Pre-Clinical Program on a monthly basis in arrears, and PTI shall render payment to DURECT within thirty (30) days of PTI’s receipt of such invoice. DURECT shall retain copies of any receipts, bills, invoices, expense account information and any other supporting data for DURECT’s Research Expenses, which PTI shall have the right to audit in accordance with Section 9.8(b). PTI shall be responsible for all of its own expenses relating to each Pre-Clinical Program.

 

(c) Regardless of the DURECT Research Expenses actually incurred by DURECT for the conduct of the Pre-Clinical Program for each Licensed Product, PTI’s compensation to DURECT under Section 2.3(a) for DURECT Research Expenses for the Pre-Clinical Program of each Licensed Product under development shall be at least [* * *] for each calendar year until the completion of DURECT’s activities under such Pre-Clinical Plan. The foregoing required minimum yearly spend shall be pro-rated (on a weekly basis) for partial years.

 

2.4 Other Development Activities.

 

Subject to the terms and conditions herein, with respect to each Licensed Product for which the Pre-Clinical Program is successfully completed as determined by the JDT, PTI shall be solely responsible for and shall use reasonable commercial efforts to conduct, as it deems appropriate or useful in its discretion in accordance with its obligations hereunder, all non-clinical and other work not included in the Pre-Clinical Program Plan to the extent required for Product Registration for such Licensed Product including [* * *]. Notwithstanding anything herein to the contrary, DURECT shall be solely responsible for all initial and subsequent [* * *] with respect to each Licensed Product during the Term of the Agreement in accordance with specifications as are determined by the JDT, and PTI shall reimburse to DURECT all DURECT Research Expenses associated with such [* * *] activities in accordance with the procedures set forth in Section 2.3(a) and (b) above with respect to DURECT’s Pre-Clinical Program activities; provided, however, if DURECT is unable to perform or fails to carry out any such [* * *], then PTI (itself or through Third Parties) shall have the right to perform such [* * *]. [* * *] Accordingly, PTI shall provide to DURECT from time to time, under confidence, information in PTI’s possession or control reasonably necessary for DURECT to perform such [* * *] or any other development activity required to be performed by DURECT hereunder.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-9-

ARTICLE III

 

CLINICAL PROGRAM

 

3.1 Clinical Program.

 

With respect to each Licensed Product for which the Pre-Clinical Program is successfully completed as determined by the JDT, PTI shall, at its sole expense, use commercially reasonable efforts to (i) conduct all reasonable activities relating to the clinical development for such Licensed Product and (ii) make all applications, requests for authorizations and submissions to appropriate Regulatory Authorities, for the purposes of obtaining Product Registration in the Major Market Countries in the Territory for such Licensed Product to the extent reasonably necessary for PTI to discharge its obligations pursuant to Section 8.5 (the “Clinical Program”) subject to the remaining terms of this Section 3.1. Subject to the terms and conditions of this Agreement, PTI shall at its sole discretion determine the Clinical Program activities to be performed with respect to each Licensed Product and the Product Registrations to be obtained necessary for the Commercialization of each Licensed Product in the Territory.

 

3.2 Clinical Program Milestones.

 

(a) After the date of the successful completion of the Pre-Clinical Program for each Licensed Product as shall be determined by the JDT, PTI shall use commercially reasonable efforts to achieve the milestones relating to the Clinical Program for such Licensed Product on or before the specified date of completion set forth on Exhibit 3.2, which is attached hereto and incorporated herein by reference (each a “Clinical Program Milestone”); provided, that DURECT shall have supplied all the Bulk Dosage Form or SABER™ Ingredients, as appropriate, to PTI in accordance with Article V and shall have provided all necessary information and regulatory documents in accordance with Section 3.3(a). Notwithstanding the foregoing, in the event that DURECT does not supply all the Bulk Dosage Form or SABER™ Ingredients to PTI in accordance with Article V or provide all necessary information and regulatory documents in accordance with Section 3.3(a), then each date specified on Exhibit 3.2 shall be extended for a reasonable period as agreed to in good faith by the Parties to compensate for any delays experienced by PTI as a result of such failures, but in no case will such extension be less than day for day the number of days that DURECT is late in supplying the applicable Bulk Dosage Form or SABER™ Ingredients or in providing such information, and PTI shall achieve the milestones relating to the Clinical Program on or before such revised dates. Additionally, the Parties shall agree in good faith to extensions of the specified dates of completion for the Clinical Milestones with respect to a Licensed Product (and shall amend Exhibit 3.2 accordingly) in the event that PTI is unable to complete such Clinical Milestones despite using commercially reasonable efforts to do so and to take into account delays which are due to factors (including regulatory issues) which are out of the reasonable control of or not reasonably foreseeable by PTI (e.g., [* * *]).

 

(b) In the event that PTI does not meet a Clinical Program Milestone for a Licensed Product within the applicable timeframe set forth under Section 3.2(a), DURECT may elect to, at its sole discretion, upon [* * *] days written notice to PTI, [* * *]. Notwithstanding the foregoing, DURECT shall not have such right to [* * *] as described in the previous sentence if PTI within [*

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-10-

* *] days of receipt of the notice from DURECT (A) completes such Clinical Program Milestone or (B) provides to DURECT a good faith plan for achieving such Clinical Program Milestone within twelve (12) months of the original date therefor (as may be extended in accordance with Section 3.2(a) above) and pays to DURECT the amount of the corresponding milestone payment pursuant to Section 9.2 or 9.3, as applicable, that would have been due and payable upon completion of such Clinical Program Milestone despite the failure to complete such Clinical Program Milestone at such time in which case the particular Clinical Program Milestone shall be extended for twelve (12) months and the amount so paid will be creditable against the amount due to DURECT under Section 9.2 or 9.3 when such Clinical Program Milestone is actually completed; provided that if PTI fails to achieve such Clinical Program Milestone within such extension period, then DURECT will have the right set forth in the first sentence of this Section 3.2(b) above.

 

3.3 DURECT’s Cooperation.

 

(a) DURECT shall reasonably cooperate with PTI to obtain the Product Registration for each Licensed Product in the Territory by providing any information or other materials relating to the conduct of the Pre-Clinical Program or the SABER™ Delivery System in DURECT’s possession or control as PTI shall reasonably request. Without limiting the generality of the foregoing, DURECT shall assist PTI or its designee in the completion of [* * *] as required in the Territory, for each Licensed Product.

 

(b) DURECT shall, upon request from PTI make reasonably available to PTI members of the research, development and technical staff of DURECT assigned to the Pre-Clinical Program with respect to a Licensed Product in order to assist PTI in the scale-up of operations and in the Commercialization of such Licensed Product in the Territory.

 

(c) PTI shall pay DURECT for all costs reasonably incurred by DURECT in connection with DURECT’s activities, which are undertaken pursuant to this Section 3.3 as calculated in the same manner as DURECT Research Expenses. DURECT shall invoice PTI on a monthly basis in arrears for such costs. PTI shall pay DURECT the amounts payable within [* * *] days after receipt of such invoice by PTI.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-11-

ARTICLE IV

 

MINIMUM DEVELOPMENT REQUIREMENTS

 

4.1 Minimum Development Requirements.

 

Subject to the terms and conditions including the terms of this Article IV below, during the Term, PTI shall diligently develop and Commercialize Licensed Products in accordance with the following minimum development diligence requirements set forth in this Section 4.1 (“Development Diligence Requirements”). Commencing in calendar year 2003 and for each period thereafter during the Term, PTI shall have the minimum required number of [* * *] Licensed Products which are either under development or being Commercialized under this Agreement on the first day of each such period as set forth in the table below:

 

MINIMUM REQUIRED NUMBER OF LICENSED PRODUCTS

 

 

4.2 Consequences.

 

If the above Development Diligence Requirements are not met by PTI in any period during the Term, then DURECT shall have the right, upon
[* * *] days’ written notice to PTI, to [* * *], provided that PTI does not cure such failure by giving notice within such [* * *] day period to DURECT of adding additional Licensed Product(s) for development hereunder sufficient to meet such Development Diligence Requirements, and further provided, however, notwithstanding the foregoing, PTI shall retain an exclusive license under Section 8.1 with respect to any Licensed Product that PTI has under development and continues to diligently develop and Commercialize under this Agreement. For purposes of this Agreement, each Licensed Product including [* * *] shall be deemed a “different” Licensed Product.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-12-

4.3 Expiration of Development Diligence Requirements.

 

The provisions of Sections 4.1 and 4.2 above shall expire at such time as any [* * *] Licensed Products each have generated Net Sales of at least [* * *] during [* * *]. Notwithstanding the foregoing, in the event that this Agreement is assigned to an Acquiror of PTI pursuant to Section 17.1 as a result of a Change of Control of PTI, then the provisions of Sections 4.1 and 4.2 above shall be applicable to such Acquiror; provided, however, that such diligence requirements shall be suspended with respect to such Acquiror for so long as such Acquiror is Commercializing at least [* * *] each of which has generated Net Sales of at least [* * *] during the [* * *] (the “Suspension Condition”). In the event that after being satisfied the Suspension Condition is no longer then currently satisfied, the provisions of Sections 4.1 and 4.2 shall again apply beginning ninety (90) days immediately following the time and for so long as the Suspension Condition is no longer satisfied. “Change of Control” means any transaction or series of related transactions that would occasion: (i) any share exchange, business combination, consolidation or merger or series of transactions resulting in the exchange of the outstanding shares of a Party unless the stockholders of such Party that exist immediately prior to the closing date of such transaction (or series of related transactions) hold, after the closing date, more than fifty percent (50%) of the voting equity of the surviving entity in such transaction computed on a fully diluted basis, or (ii) a sale or other transfer of all or substantially all of the assets of such Party.

 

4.4 Addition or Deletion of Licensed Products.

 

Subject to Sections 2.1, 4.1 and 8.5, PTI may add or delete Licensed Products under this Agreement within its reasonable, good faith judgment provided that PTI provides DURECT with ninety (90) days prior written notice of any such addition or deletion.

 

ARTICLE V

 

DURECT MANUFACTURE AND SUPPLY

 

5.1 DURECT Manufacture and Supply During Clinical Phase.

 

(a) Subject to the terms and conditions set forth herein, DURECT shall manufacture and supply to PTI, and PTI shall purchase from DURECT: (i) [* * *] described in the written specifications designated by the JDT therefor in accordance with Section 5.1(b) (collectively, the “SABER™ Ingredients”) for manufacture of Licensed Products used in the conduct of the Clinical Program and (ii) [* * *] as designated by the JDT ([* * *], the “Bulk Dosage Form”).

 

(b) The specifications for the SABER™ Ingredients, and the Bulk Dosage Form for each Licensed Product, including any applicable packaging, container-closure system component and labeling specifications, shall be agreed upon in writing by the JDT. Any modifications to such specifications shall be agreed upon in writing by the JDT. The specifications for the SABER™ Ingredients or the Bulk Dosage Form, and any subsequent amendments thereto, shall be maintained in a Chemistry, Manufacturing and Controls Specification Guide for the Licensed Product and incorporated herein by reference. Without limiting the foregoing, the Parties shall use good faith efforts to modify the specifications for a particular SABER™ Ingredients or Bulk Dosage Form in

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-13-

the event such modification is necessary for approval of the Product Registration or other regulatory issues with respect to the applicable Licensed Product.

 

(c) The SABER™ Ingredients and Bulk Dosage Form supplied by DURECT shall be used by PTI solely in accordance with this Agreement.

 

(d) DURECT shall supply the SABER™ Ingredients and Bulk Dosage Form in accordance with the Section 5.3(f) to PTI at the “Transfer Price” set forth in Exhibit 5.1.

 

5.2 Supply of Opioid Drugs and Antagonists.

 

With respect to the supply of Bulk Dosage Form supplied by DURECT hereunder, DURECT agrees to obtain quantities of appropriate Opioid Drugs and Antagonists from one or more suppliers designated by PTI that it will require to fulfill its supply obligations hereunder. Any Opioid Drugs or Antagonists so obtained shall be used solely as set forth herein to supply PTI with its requirements of Bulk Dosage Form.

 

5.3 Terms and Conditions Applicable to Clinical Supply.

 

(a) It is understood that DURECT agrees to supply (i) Bulk Dosage Form for use in the [* * *] and (ii) SABER™ Ingredients for [* * *]. Accordingly, at the time of [* * *], PTI will provide DURECT a plan for requirements and good faith timeline for SABER™ Ingredients and the Bulk Dosage Form for use during the [* * *] for such Licensed Product (the “Clinical Supplies Requirement Plan”). The Clinical Supplies Requirement Plan and each revision shall be reasonably sufficient to provide for the requirements of the [* * *] and agreed to in writing by the Parties. Within [* * *] days of approval of the Clinical Supplies Requirements Plan, PTI and DURECT shall prepare a plan for DURECT’s supply of Bulk Dosage Form and SABER™ Ingredients pursuant to such Clinical Supplies Requirement Plan (the “Clinical Supplies Delivery Plan”).

 

(b) DURECT shall use commercially reasonable efforts to deliver the specified quantity of the SABER™ Ingredients and the Bulk Dosage Form in accordance with the delivery schedule set forth in the Clinical Supplies Delivery Plan. DURECT shall exercise commercially reasonable efforts to comply with changes to Clinical Supplies Delivery Plan that PTI may request but shall not be liable for its inability to do so. The Clinical Supplies Delivery Plan may be amended by mutual agreement of the Parties.

 

(c) DURECT shall deliver the quantity of the SABER™ Ingredients and the Bulk Dosage Form in accordance with the Clinical Supplies Delivery Plan, along with appropriate documentation including Certificate of Analysis (describing the specifications therefor, results of tests performed and certifying compliance with such specifications and applicable cGMP requirements) and other documentation to be defined by the Parties, to a location designated in writing by PTI, FOB [* * *]. Title to the SABER™ Ingredients or Bulk Dosage Form, as applicable, shall pass to PTI [* * *] from DURECT’s facility.

 

(d) DURECT shall promptly invoice PTI for all quantities of the SABER™ Ingredients and the Bulk Dosage Form delivered in accordance herewith, provided that DURECT shall not submit any invoice prior to the shipment thereof. Payment with respect to a shipment shall

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-14-

be due [* * *] days after receipt by PTI of such invoice. The terms and conditions of this Agreement shall exclusively govern the purchase and supply of SABER™ Ingredients and Bulk Dosage Form hereunder and shall override any conflicting, amending and/or additional terms contained in any order, acceptance or invoice.

 

(e) Should DURECT experience manufacturing difficulties that, or have reason to believe that it is likely to experience difficulties that would, result in a significant delay in delivery of SABER™ Ingredients or Bulk Dosage Form hereunder, DURECT shall promptly advise PTI of such delay and work together with PTI in good faith to develop a solution to address and minimize such delay. In the event that DURECT does not deliver the SABER™ Ingredients or Bulk Dosage Form within [* * *] days after the delivery date set forth in the Clinical Supplies Delivery Plan, PTI shall have the right to suspend its payment obligations for such SABER™ Ingredients or Bulk Dosage Form until DURECT has delivered such SABER™ Ingredients or Bulk Dosage Form.

 

(f) DURECT warrants that, at the time of delivery of the SABER™ Ingredients or Bulk Dosage Form, as applicable, to PTI: (i) such SABER™ Ingredients or Bulk Dosage Form will have been manufactured, stored and shipped in accordance with all applicable laws in the Territory, including applicable cGMP’s; (ii) such SABER™ Ingredients or Bulk Dosage Form will have been manufactured in accordance, and be in conformity, with the specifications for the SABER™ Ingredients or Bulk Dosage Form agreed to by the JDT under Section 5.1(b); (iii) such SABER™ Ingredients or Bulk Dosage Form will not be adulterated or misbranded under the Act or any equivalent law in the Territory; (iv) title to such SABER™ Ingredients or Bulk Dosage Form will pass to PTI as provided herein free and clear of any security interest, lien or other encumbrance; (v) such SABER™ Ingredients or Bulk Dosage Form will have been manufactured in facilities that are in material compliance with all applicable laws at the time of such manufacture (including applicable inspection requirements of FDA and other applicable Regulatory Authorities in the Territory); and (vi) such SABER™ Ingredients or Bulk Dosage Form may be introduced into interstate commerce pursuant to the Act.

 

(g) In the event that, within [* * *] days after receipt thereof by PTI, any SABER™ Ingredients or Bulk Dosage Form supplied by DURECT do not conform to the warranties set forth under Section 5.3(f), PTI shall give DURECT notice thereof (including a sample of such SABER™ Ingredients or Bulk Dosage Form). DURECT shall undertake appropriate testing of such sample and shall notify PTI whether it has confirmed such non-conformity within [* * *] days after receipt of such notice from PTI. If DURECT notifies PTI that it has not confirmed such non-conformity, the Parties shall submit the disputed batch to an independent testing laboratory mutually acceptable to the Parties (the “Testing Laboratory”) for testing. The findings of the Testing Laboratory shall be binding on the Parties, absent manifest error. The expenses of the Testing Laboratory shall be borne by DURECT if the testing confirms the non-conformity and by PTI if the testing does not confirm the non-conformity. If the Testing Laboratory or DURECT confirms that a batch of SABER™ Ingredients or Bulk Dosage Form, as applicable, does not conform to the warranties set forth under Section 5.3(f), DURECT shall promptly, at the election of PTI, (i) supply PTI with a replacement conforming quantity of the SABER™ Ingredients or Bulk Dosage Form at DURECT’s expense or (ii) reimburse PTI for the costs paid by PTI for such non-conforming SABER™ Ingredients or Bulk Dosage Form, and shall additionally reimburse PTI for any out of pocket costs relating to the disposal or return to DURECT of such SABER™ Ingredients or Bulk Dosage Form. The rights and

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-15-

remedies provided in this Section 5.3 and Section 5.4 shall be the exclusive remedy of PTI for non-conforming products. DURECT EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

(h) DURECT shall maintain, or cause to be maintained (i) all records necessary to comply with all applicable law in the Territory relating to the manufacture of the SABER™ Ingredients and Bulk Dosage Form supplied to PTI hereunder, including the cGMP’s; (ii) all manufacturing records, standard operating procedures, equipment log books, batch records, laboratory notebooks and all raw data relating to the manufacture of SABER™ Ingredients and Bulk Dosage Form; and (iii) such other records as PTI may reasonably require in order to ensure compliance by DURECT with the terms and conditions of this Agreement. All such material shall be retained for such period as may be required by cGMP’s or any other applicable law in the Territory, whichever is longest.

 

(i) DURECT agrees that PTI and its agents shall have the right, upon reasonable prior notice to DURECT, to inspect any location where SABER™ Ingredients or Bulk Dosage Form are being manufactured, as applicable, including inspection of (i) the materials used in the manufacture of the SABER™ Ingredients or Bulk Dosage Form; (ii) the holding facilities used in the manufacture of the SABER™ Ingredients or Bulk Dosage Form; (iii) the equipment used in the manufacture of the SABER™ Ingredients or Bulk Dosage Form, and (iv) all records relating to such manufacturing in each such manufacturing facility. Following such audit, PTI shall discuss its observations and conclusions with DURECT and corrective actions shall be agreed in writing upon by PTI and DURECT within [* * *] days thereafter. DURECT shall implement such corrective action within [* * *] days after the Parties reach such agreement, unless otherwise agreed in writing by the Parties.

 

(j) DURECT shall notify PTI by telephone within [* * *] business days, and in writing within [* * *] business days, after learning thereof, of any proposed or unannounced visit or inspection of any facility used in the manufacture of SABER™ Ingredients or Bulk Dosage Form or any manufacturing Process used in connection with the manufacture of SABER™ Ingredients or Bulk Dosage Form, by any Regulatory Authority, and shall permit PTI or its agents to be present and participate in such visit or inspection. DURECT shall provide to PTI a copy of any report and other written communications received from such Regulatory Authority in connection with such visit or inspection, and any written communications received from such Regulatory Authority, within [* * *] business days after receipt thereof, including any FDA Form 483 or Notice of Observation, and shall consult with PTI concerning the response of DURECT to each such communication. DURECT shall provide PTI with a copy of all draft responses for comment as soon as possible and all final responses for review and approval, which shall not be unreasonably withheld or delayed, within [* * *] business days prior to submission thereof.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-16-

5.4 Failure to Supply.

 

(a) If DURECT fails [* * *] or more times within any [* * *] period to supply the full quantity of SABER™ Ingredients or Bulk Dosage Form specified in the Clinical Supplies Delivery Plan by the delivery date specified therein and in conformity with the warranty set forth in Section 5.3(f), PTI may, in its sole discretion, [* * *]

 

(b) Subject to all other terms and conditions of this Agreement, [* * *].

 

5.5 Supply Agreement for the Commercial Phase.

 

(a) Subject to this Section 5.5, PTI agrees that DURECT shall have the right to supply all GMP-qualified SABER™ Ingredients for the commercial supply of all Licensed Products. Prior to PTI’s receipt of the first Product Registration in the Territory for the first Licensed Product, the Parties shall negotiate in good faith and shall agree in writing to a supply agreement relating to the supply by DURECT of the SABER™ Ingredients to PTI for purposes of the Commercialization of the Licensed Products, provided that such agreement shall include the pricing terms set forth in Section 5.1(d) and shall further provide that DURECT will (i) qualify a second manufacturing site (which can be another facility owned by DURECT) for the SABER™ Ingredients when the aggregate Net Sales of Licensed Products hereunder exceed [* * *] per year and (ii) establish, at PTI’s request and expense, an escrow account and deposit therein the DURECT Deposit Materials which provides release thereof to PTI or its designee in the event that DURECT is unable to or fails to supply quantities of SABER™ Ingredients as required in the supply agreement. Additionally, the supply agreement shall include provisions for DURECT to qualify a Third Party supplier at PTI’s discretion and cost for SABER™ Ingredients and for backup manufacturing rights similar to those set forth in Section 5.4. For purpose of this Section 5.5(a), “DURECT Deposit Materials” means instructions, specifications, and other Technical Information and materials describing the composition and manufacture of each such SABER™ Ingredients, including a description of the suppliers, raw materials, processes, equipment, and instruments used for such manufacture, all in sufficient detail to reasonably enable PTI to manufacture, without need for further information, the SABER™ Ingredients in the same manner as such manufacture is performed by or for DURECT.

 

(b) Without limiting Section 5.5(a) above, DURECT agrees to transfer to PTI or its designee processes and manufacturing know-how (including process information and methodologies, analytical and validation testing methods and criteria, and qualified sources of raw materials) in its possession and control reasonably necessary for PTI or its designees to manufacture commercial quantities of Licensed Product using SABER Ingredients supplied in accordance with Section 5.5(a). PTI shall pay DURECT for all costs reasonably incurred by DURECT in connection with DURECT’s activities, which are undertaken pursuant to this Section 5.5(b) as calculated in the same manner as DURECT Research Expenses. DURECT shall invoice PTI on a monthly basis in arrears for such costs. PTI shall pay DURECT the amounts payable within thirty (30) days after receipt of such invoice by PTI.

 

5.6 PTI Responsibilities.

 

* * * Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to the omitted portions.

 

-17-

Other than DURECT’s foregoing supply obligations of SABER™ Ingredients and Bulk Dosage Form, as between the Parties, PTI shall be solely responsible for manufacturing, or having manufactured, the Licensed Products for use in the conduct of the Clinical Program and for Commercialization.

 

ARTICLE VI

 

PTI MANUFACTURE AND REGULATORY INTERACTIONS

 

6.1 PTI Manufacture and Supply.

 

Without limiting Section 5.6 above, PTI shall have the right and responsibility (itself or through others) for (i) the finishing of SABER™ Ingredients supplied by DURECT into finished Licensed Product for conduct of the Clinical Program and Commercialization hereunder and (ii) all final packaging (including trade dress (product packaging, design and the like), trade names and trademarks used therewith) for the Licensed Product.

 

6.2 Regulatory Authority Interactions.

 

Subject to Section 6.3 below, the Parties understand and agree that PTI, itself or through its agents, shall have the sole right to correspond with and submit INDs, NDAs, regulatory applications and other filings to the FDA or other Regulatory Authorities to obtain Product Registration approvals to import, export, sell or otherwise commercialize the Licensed Products as PTI deems useful or necessary to fulfill its obligations hereunder. Accordingly, except as otherwise required by law, DURECT shall not correspond directly with the FDA or any other Regulatory Authority relating to the process of obtaining Product Registrations or any obtained Product Registration for the Licensed Products, without PTI’s prior permission. Notwithstanding the foregoing, DURECT agrees to provide such reasonable assistance, as requested by PTI and at PTI’s expense, in preparing, submitting and maintaining NDAs and other applications for such Product Registrations.

 

6.3 DURECT Rights.

 

No